Thursday, September 25, 2008

Analogy #211: Killing With Good Intentions

THE STORYWhen I was a very little boy, I got sick. The doctor prescribed medicine to help me get better.

After taking the medicine, I continued to be sick, so my father told the doctor the medicine wasn’t working. The doctor responded by increasing the dosage. After taking the increased dosage, not only did I not get better, I got worse.

So we went through a few more rounds of upping the dosage until I was very, very ill, coughing up lots of blood and all. There was some concern about whether or not I would survive. Then my dad decided that perhaps it was the medicine which made me ill, so he stopped giving it to me. Not too long thereafter, I became healthy again.

Nowadays, when a doctor or nurse asks me if I have any allergies they should know of, I am quick to tell them not to give me any of that medicine I had as a child.

THE ANALOGYOne of the core foundations to success in medicine is an accurate diagnosis of the problem. If you diagnose the problem incorrectly, you will take the wrong course of action. In my case, the doctor had incorrectly diagnosed my symptoms as being related to the disease rather than a reaction to the medicine. His prescribed solution—increasing the dosage of the medicine—almost killed me.

The symptoms of sickness in a business are usually easy to see—financial losses, large decreases in sales, loss of market share, inability to pay the interest on the debt, and so on. However, just because one can see the symptoms of sickness in the business does not automatically mean that you know how to cure it. You may guess wrong, like my doctor did, and actually do more damage than good.

Any fool could have seen that I was very sick…you didn’t need a medical degree for that. But the one with the medical degree did not know how to cure me, which put my long-term survival at risk.

Victory comes not from identifying the symptoms, but rather from knowing how to remedy the underlying cause of the symptoms. Identify the right cause and then you can prescribe the proper strategy.

THE PRINCIPLEThe principle here is to focus on curing the underlying cause, rather than the symptoms. For example, a symptom of a problem may be poor sales. If you only focus on eliminating the symptom (poor sales), you may conclude this is a marketing problem and pump up the advertising. Unfortunately, this may be exactly the wrong thing to do.

In a prior blog, we looked at what happened when Wendy’s had the “Where’s the Beef” advertising campaign. It was one of the most successful advertising campaigns ever, if measured by recognition. And in the near-term, it brought a lot of traffic back to Wendy’s. But for Wendy’s, that prescription of using those ads almost killed the patient.

You see, the real disease was that in-store operational discipline had deteriorated to the point that the in-store dining experience was awful. All the advertising succeeded in doing was get more people in to have a bad experience sooner, so that the image got worse more quickly. Those ads were as helpful in fixing the problem as that medicine was for me as a child. It was making things worse.

Eventually Wendy’s figured out what the real disease was and improved the in-store dining experience. It was only after fixing the underlying problem that the company was able to improve. Therefore, when designing strategies, build them around underlying issues instead of just surface symptoms.

In general, there are only three main underlying issues to focus on. If the surface symptoms look sickly, they can usually be cured by repairing one of these three issues.

Issue #1: A Reason For BeingWinning strategies start with a winning position—a reason why someone should prefer you over all other alternatives. You need to own a uniquely desirable solution in the marketplace. If you cannot quickly and easily describe why you are the obvious choice in particular area, then don’t be surprised if customers fail to choose you.

I’ve seen many companies try to avoid this positioning issue. Usually, their argument goes something like this: “Sure, I won’t have the leading market share, but if I can just get about a 5 to 10% share, I should be able to do okay. And to get a 5% share, all I need to do is be a credible alternative.”

The problem is that usually there are a dozen or so firms looking to get that 5 to 10% share, and once the market leaders are done getting their 50 to 60% share, there aren’t enough 5 to 10% wedges in the market share pie to satisfy all of those dozens of firms. Just being credible is not enough. You need to have a winning position of leadership with a niche group in order to get even a small share.

K Mart has a lot of bad symptoms and one can use a lot of tactics to try to eliminate those symptoms. However, K Mart’s real problem is that they no longer have a great position—a reason for being. Until that root problem is fixed, the rest is wasted effort. That’s why just putting some Sears brands into K Mart or putting a talking light bulb on TV won’t get the job done. The bad symptoms will remain at K Mart until a strategy is put in place to repair the POSITION.

On the right of this blog, there is a listing of blog topics I have covered. If you click on “Positioning,” you can learn about ways to cure this problem.

Issue #2: Not Delivering on the PromiseA great position is only great if consumers are satisfied that you are superior in delivering on the promises inherent in that position. Home Depot’s early success was based on an encirclement position: Best Assortment, Best Prices, and a High Level of Personal Service.

Over time, Lowe’s tended to neutralize the assortment and price superiority Home Depot once held. In addition, Home Depot lowered its standard for service in order to save money. As a result, Home Depot was no longer winning on the promises behind its position. Therefore, all sorts of bad symptoms started to appear.

It took awhile (and a change in CEO’s), but eventually Home Depot figured out that to fix the symptoms, they had to return to delivering on the promises behind the position. Superior service is once again a priority. The symptoms are starting to get better.

Make sure your position is more than just hollow words. Have your strategy look for ways to increase your ability to “own” your position by pushing the envelope. Increase the distance between your level of delivery and the rest of the market. In addition, before tweaking with your business model, think about the long-term implications it may have on your ability to hold your position. Skimping a little bit on service may have helped a tiny bit in the near term, but created a long-term sickness for Home Depot.

Issue #3: Inefficiency/ComplacencyI’ve seen companies who got the first two issues right, but still had some bad symptoms creep in. What was wrong? They got lazy, sloppy, greedy and fat. The headquarters became lavish and bloated. Bureaucratic gridlock made it impossible to get anything done. Inefficiencies and wastefulness sucked up all of the cash.

The world is too competitive to allow for gross inefficiency. A leaner firm can come in and use its superior efficiency to fund a successful attack on your position.

We live in a world of constant change. Lean and nimble companies who have a war chest of money at their disposal are best able to adapt to the change and stay ahead of the game. There is never a good time to rest and stop fighting, because the battle never stops.

SUMMARYIf your company is showing signs of problems, don’t focus on the symptoms. Instead, build your strategy around the root causes of the problem. Typically, those root causes revolve around three issues: poor positioning, poor delivery on the position, or inefficiency/complacency. Get those root issues right, and the bad performance symptoms will tend to go away.

FINAL THOUGHTSWhen I make an appointment on the phone to see a doctor, the receptionist will usually ask “what seems to be the problem?” Apparently, they want me to make a self-diagnosis before seeing the doctor. I’m not sure I’m always the most qualified one to do that. That’s why I’m trying to get an appointment with the doctor.

Similarly, if one of your business divisions is having problems, don’t just rely on their own abilities at self-diagnosis. Take the time to get an objective and accurate diagnosis. Remember, if they are so smart, then how come their division is so sick?

About Me

I have over 25 years of experience, having worked in strategy with a number of leading US retailers. You can learn more about me by visiting my digital resume (www.VisualCV.com/geraldnanninga) of the site for consulting (http://planninga-from-nanninga.webs.com)